China's aluminum imports may break one million tons in 2020

According to Chinese customs data, China imported only 220,000 tons of aluminum annually from 2010 to 2019. From January to November 2020, China's aluminum imports totaled 934,000 tons, and it is expected that the annual import volume may exceed 1 million tons, a new high since 2009.

If China's new crown virus pneumonia (COVID-19) is effectively controlled in 2021 and the economy continues to recover steadily, aluminum imports are bound to continue to grow, and domestic and foreign aluminum futures and spot prices will follow.

The new crown virus is changing the aluminum market

Aluminum is a non-ferrous metal with a global configuration. It is widely used in many fields such as automobiles, aerospace, rail transit, new building materials, home appliances, and food industry. Therefore, this variety is highly sensitive to economic cold and heat.

After years of development, China's aluminum production and consumption account for almost half of the world's total. The domestic electrolytic aluminum industry has basically formed a self-sufficient "internal cycle" pattern, and aluminum imports are negligible compared to huge output. But the chain reaction caused by the new crown virus in 2020 seems to be beginning to break this pattern.

On the demand side, when major developed economies such as Japan, Europe and the United States fell into the second wave of the new crown virus epidemic, China's domestic epidemic was initially contained. Active resumption of work and production and new infrastructure projects promoted the first economic recovery.

In May, Caixin China's manufacturing PMI rebounded to 50.7 and returned to the expansion range. Since then, the PMI has steadily increased and reached 54.9 in November, a new high since December 2010.

In November, the production and sales of automobiles completed 2.847 million and 2.770 million, respectively, up 11.5% and 7.6% month-on-month, and 9.6% and 12.6% year-on-year. Production and sales have shown growth for 8 consecutive months and hit a new high during the year, of which sales have maintained a growth rate of more than 10% for 7 consecutive months.

The automobile and other manufacturing industries have strongly stimulated domestic demand for aluminum, and the market for aluminum trading has begun to be active, and the aluminum inventory on the Shanghai Futures Exchange (SHFE) has dropped significantly after April and May. On the contrary, European and American auto factories had to take measures to restrict and reduce production due to the impact of the epidemic, and the demand for aluminum in the international market was weak.

The aluminum inventory in the designated warehouse of the London Metal Exchange (LME) increased to 1.637 million tons (data at the end of July), the highest inventory level since April 2017.

On the supply side, two major factors have begun to constrain the expansion of China Aluminum's new capacity.

One is the commitment and pressure of environmental protection. In September 2020, the Chinese government promised at the United Nations General Assembly that carbon dioxide emissions will peak by 2030 and be carbon neutral by 2060. The production of electrolytic aluminum mainly relies on thermal power generation, which emits a large amount of carbon dioxide to pollute the air. Under the guidance of the policy of popularizing "green aluminum", many provinces and cities no longer allow new electrolytic aluminum plants that use coal power. Yunnan and other places have begun to dismantle some coal-fired aluminum smelting equipment and plan to switch to hydropower aluminum smelting. Citigroup of the United States predicts that "China's aluminum production capacity expansion will be hindered by 2022."

Second, the expansion of the thermal coal gap will limit the capacity of electrolytic aluminum plants. Affected by the new crown virus epidemic, China's imports from Indonesia, the largest coal source country, continued to decline in 2020, from 21.1 million tons in January to a mere 4.42 million tons in November. Due to the severe epidemic in Mongolia, the third largest source country, imports fell sharply from 2.44 million tons in January to less than 300,000 tons in March, and it was not until July that they returned to the level at the beginning of the year. Since November 6, China has stopped importing coal from Australia, the second largest source country, which has made domestic thermal coal supply "exacerbated". Some scholars predict that by April 2021, China's thermal coal gap may be as high as 4 million tons. The electricity consumption of electrolytic aluminum production is huge (about 30% of the production cost and electricity bills), and the shortage of thermal coal supply will force major electrolytic aluminum factories to limit production or even stop production.

China's aluminum imports will continue to grow in 2021, and promote the rise of domestic and foreign aluminum prices

MilesProcesser, Secretary General of the International Aluminum Association, analyzed the aluminum industry at the 2020 Non-Ferrous Metals Industry Annual Conference. He believes that global economic activities have been hit hard by the new crown pneumonia epidemic, and the transportation and construction sectors have been particularly damaged. Global aluminum demand will shrink significantly in 2020, which is estimated to be 5.4% less than in 2019. However, global aluminum demand will rebound in 2021 and is expected to increase by about 6% year-on-year. The author believes that China's increased demand for aluminum will account for a very high proportion of it. Of course, changes in the Chinese market's demand for aluminum depend to a large extent on the development and trend of the new crown virus epidemic.

While aluminum demand returns, energy conservation and environmental protection and the shortage of thermal coal are still the two "tightening spells" that restrict China's aluminum production. At present, the coal gap in Australia is very large (the import volume is equivalent to the sum of Mongolia and Russia) and cannot be made up in the short term. However, focusing on environmental protection and reducing carbon emissions will be the continuous long-term strategy of the Chinese government. The author predicts that in 2021, more Chinese buyers will deeply participate in international aluminum market transactions and actively negotiate for the purchase of imported aluminum and its products, thereby pushing up domestic and foreign aluminum prices, and continuing the trend of "both volume and price rise" in the aluminum market in 2020 .